You might think it's common sense – lenders operating mainly in middle class and affluent areas. The CFPB doesn’t think so, and neither does the New York Times. But, some argue – this is just political grandstanding and a great way to extract more fines from lenders.
When the New York Times ran its story this weekend entitled “Biased Lending Evolves, and Blacks Face Trouble Getting Mortgages” it was standard fare for a newspaper that is often criticized for being liberal leaning. It also accused lenders of deliberately institutionalizing bias into the framework of their business by intentionally placing branches, brokers and mortgages in non-minority areas. The practice of excluding areas from lending practice is known as redlining.
What makes this story more interesting, perhaps, is that the comments that are flying in from the probably liberal-leaning readership seem to be questioning the story. “Sorry if I owned a bank I would open it in a middle class neighborhood, not a high crime neighborhood” wrote Mary – who was joined by nearly 200 other commenters, the vast majority expressed surprise at the assertions that originators should operate out of places where, statistics clearly show, people can’t afford houses.
The NY Times story focuses on the hapless recipient of a lawsuit from the CFPB and the Justice Department – Hudson City Savings Bank. Hudson denied wrongdoing but settled with both departments by agreeing to pay $33million. And flushed with success the Justice department has a veritable fine bonanza on the way with more redlining investigations under way than at any time in the last seven years – and we all know what happened last time lenders provided low income areas with loans – they were accused of profiteering from the poor.
“Redlining is not a vestige of the past,” Vanita Gupta, the principal deputy assistant attorney general of the Justice Department, told media recently.
The punishment is particularly worrisome given that Hudson has always had a reputation of being a cautious lender – in 2007 Forbes magazine gave it the title of "Bland but Beautiful" for steering away from high risk loans. It seems that following its prudent lending practices have made it an easy target for politicians looking for cheap headlines.
The question that the CFPB and JD ought to be asking is - are lenders deliberately redlining areas on their ethnicity, or in reality, avoiding low income areas after a huge housing crash? And the question that our industry ought to be asking is - are we being made scapegoats again for a dysfunctional bureaucracy that tries to politicize and pass blame for failed social programs?
The Justice department has more redlining investigations under way than at any time in the last seven years – and the subject has never been more controversial.